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Post Office needs to cut deeper

By Ben Rooney, staff reporterApril 12, 2010: 3:20 PM ET

NEW YORK (CNNMoney.com) -- The U.S. Postal Service is laboring under an outdated business model and needs to cut salaries, close facilities and take other steps to to aggressively slash costs, the Government Accountability Office said Monday.

"USPS's business model is not viable due to USPS's inability to reduce costs sufficiently in response to continuing mail volume and revenue declines," the GAO said in a report. "Given its financial problems and outlook, USPS cannot support its current level of service and operations."

The GAO study was commissioned after the Post Office submitted a proposal to Congress last month to overhaul its business model that included, among other things, the elimination of Saturday mail service.

Over the last three years, the USPS has lost nearly $12 billion as mail volume plunged 17% due to the weak economy and the increasing popularity of e-mail.

According to the GAO, the Post Office is nearing its $15 billion borrowing limit mandated by the U.S. Treasuryand has unfunded pension and retiree health obligations and other liabilities of about $90 billion.

The report said the recently proposed turnaround plan recognizes that immediate actions are needed, but added that the Post Office has made "limited progress" on some options, such as closing facilities.

If steps are not taken to overhaul the Post Office, the GAO warned that "risks of larger USPS losses, rate increases, and taxpayer subsidies will increase."

To help relieve the pressure, Congress should allow the Post Office to revise its retiree health benefit plan, while continuing to fund its obligations over time, the GAO said. Lawmakers should also require that any binding arbitration resulting from collective bargaining with employees would take the Post Office's financial condition into account.

John Potter, the postmaster general, wrote in an April 2 letter to the GAO that he is "pleased" with the audit and that his office agrees with many of its findings.

"There is no question that the Postal Service's business model is not viable and that swift action must be taken to avert a financial crisis," said Potter.

Potter cited revenue declines and the growth of costs. "There is no reason to believe that this situation will improve without structural changes," he wrote.

The Post Office has already made draconian cost cuts over the past several months. It chopped 40,000 positions through early retirement packages and attrition in fiscal 2009 alone.

The agency expects to suffer a record loss of more than $7 billion in fiscal 2010 due to ongoing declines in mail volume, stagnant revenue and growing workforce costs. The agency expects losses to balloon to $33 billion over the next decade if nothing is done to stop the bleeding.

In addition, the Post Office expects to borrow $3 billion in fiscal year 2010, which would bring its total outstanding debt to $13.2 billion, according to the GAO. That would push the agency close to its $15 billion statutory limit.

Although it's an independent government agency and does not receive taxpayer dollars, USPS is overseen by the Postal Regulatory Commission, whose five commissioners are appointed by the president.